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Sales Tax Slice: Cinco de Mayo: Tequila, Tacos and Taxes!

Cinco de Mayo, which literally translates to “May 5th,”
is a traditional Mexican holiday that commemorates Mexico’s Victory against
France in the May 5, 1862 Battle of Puebla. Not surprisingly, Americans, both of
Mexican and non-Mexican decent, have since embraced the celebratory aspects of
this holiday by gorging themselves on Mexican delights and drinking tequila and
beer.

Across America, retailers have seized the opportunity to
capitalize on the holiday by offering consumers a plethora of goods and
services to partake in many of the annual Cinco De Mayo Festivities. Type
“Cinco de Mayo” into a web search and you will be directed to many different Cinco
de Mayo events, such as the Cinco de Mayo Tequila Fest in Cleveland Ohio. You
will also come across Cinco de Mayo recipes and, of course, directions on how
to concoct the perfect margarita to wash down all of the delicious treats. Inevitably,
purchasing these goods or services comes with a price for consumers which, in
many states, is subject to an additional sales and use tax.

Generally, sales and use taxes are imposed on tangible
personal property and some services. This sort of taxation will vary by state,
but in the course of your Cinco de Mayo festivities, you will most likely pay
sales and use taxes. Food, alcohol and most, if not all, items required to put together a Cinco De Mayo fiesta (e.g.
cups, plates, napkins, forks, spoons, decorations), will likely be included in your
state’s definition of tangible personal property. In some cases, certain
taxable items may be exempt from taxation or exempt under specific limited circumstances.

With respect to food purchases, there is no uniformity
amongst states as to whether food purchases should be exempt from sales and use
taxes. California exempts foods
purchases for human consumption from taxation, unless the food falls into the
category of prepared foods. As such, if
you live in California and decide to purchase a bowl of guacamole from Chipotle
to kick off your 2016 Cinco de Mayo festivities, you will pay sales and use
tax, but if you purchase the ingredients from a grocery store and make the
guacamole yourself, you will not pay the sales and use tax. Alabama, on the
other hand, taxes both food and grocery items purchased within the state and so
either transaction would be taxable in Alabama.

States also vary on whether the alcohol is taxable. That means, depending on where you live, if
you choose to imbibe during your 2016 Cinco de Mayo celebration, you may be required
to pay state and local sales and use taxes for your alcoholic beverages. Individuals
who purchase alcohol in Iowa will pay sales and use tax on their purchase whereas
Delaware residents will not.

Although less likely, depending on what services you employ during
this year’s festivities, you may also find that you will be required to pay
sales and use tax on certain services. Specifically,
taxi and transportation services come to mind for those choosing to celebrate the
holiday at a bar or restaurant. Once again, imposition of sales and use
taxation on these services is state specific; however, the states that impose
taxes on such services can only do so on intrastate travel and not on
interstate travel, which is prohibited under federal law. Georgia, Wyoming and
New York impose sales and use tax on transportation services.

Realistically, many of the items and services discussed
above are purchased and taxed on a day-to-day basis. But, if your Cinco de Mayo
plans include a stop at your local taqueria or participation in your own
state’s version of tequila fest, you should expect that your indulgence will
most likely be taxed. Feliz Cinco de Mayo!

Continue the
discussion on LinkedIn: Tell us how your state taxes groceries, alcohol
and transportation services.

For more
information about state tax issues, sign up for a free
trialon Bloomberg BNA’s Premier State Tax Library.

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